Engro Polymer & Chemicals Limited discusses 1QCY21 results

Engro Polymer & Chemicals Limited (EPCL) management held an analyst briefing session on 19th Apr’21 to discuss the 1QCY21 financial result and future outlook.

Key Takeaways

· To recall, the company posted consolidated earnings of PKR 4,143mn (EPS: PKR 4.56) in 1QCY21 compared with PKR 193mn (EPS: PKR 0.21) in 1QCY20, up by 21x YoY. This rise in earnings is attributable to 64% YoY higher PVC margins along with higher PVC production compared to 1QCY20.

· EPCL had announced CoD of PVC-III line on 01-Mar-2021, taking total PVC capacity to 295K tons per annum.

· VCM debottlenecking is expected to come online in 2QCY21.

· The management of the company expects that the PVC prices will remain on the higher side due to supply tightness and freight cost.

· Work on the other projects is as per schedule, while LABSA project is still on hold.

· The company has planned a turnaround of 20-25 days in Jun’21, however, EPCL has sufficient inventory to fulfil the local demand.

· Expected CAPEX of Hydrogen peroxide is USD 30-35mn with a capacity of 28K tons/annum.

· PVC prices continue to increase due to: i) US storm (knocked out 87% of PVC supply), ii) turnaround season during March, and iii) high freight cost.

· During 1QCY21, the increase in PVC prices was higher than the increase in Ethylene prices, which resulted in a higher core delta.

· The management expects that the PVC supply will recover from mid of the second quarter, and freight cost will start to normalize.

· New capacities of Ethylene are coming online during 2QCY21 in China and South Korea which will create pressure on Ethylene prices.

· Domestic caustic market declined by 10-11% in 1QCY21, due to the third wave of COVID-19 in US and Europe, which resulted in a slowdown of textile exports. However, EPCL has maintained its market share, the management disclosed.

· Caustic market also declined due to seasonal decline in the soap sector.

Recommendation

· We have a “BUY” call on the stock with a Dec’21 Target Price of PKR 81.1/share.

Courtesy – AHL Research

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